The finance ministry has approved a proposal to increase the salary limit for mandatory Employees’ Provident Fund (EPF) coverage from Rs 15,000 to Rs 25,000 per month, Moneycontrol has reported. According to the report, the revised EPF wage ceiling could be implemented from April 1, 2027, though the final implementation date will be decided after Cabinet approval.
At present, only those with a basic monthly salary of up to Rs 15,000 are mandatorily covered under the Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) framework. Employees earning above this can opt out. Employers are not legally required to enrol them.
Once the salary limit is increased to Rs 25,000, employees earning between Rs 15,000 and Rs 25,000 per month will also be covered. So, these employees will be covered under compulsory provident fund and pension coverage.
Govt initially examined increasing ceiling to Rs 30,000
The department of expenditure had considered raising the salary limit to Rs 30,000 before deciding on Rs 25,000, Moneycontrol reported. The initial proposal was for a Rs 30,000 ceiling but the final approved proposal set it at Rs 25,000.
Rollout to take time
The proposal will now be sent to the Cabinet for approval. Even if the cabinet clears it, the implementation is not expected to take effect immediately. Companies will need time to update their payroll systems, compliance processes and related operational arrangements. Because of this, the government may allow a transition period before the revised wage ceiling is implemented, Moneycontrol reported.
The new EPF salary limit is expected to come into effect from April 1, 2027, although the final date will be decided after the Cabinet approves the proposal and after giving businesses enough time to prepare for the changes.
The EPF wage ceiling was last revised in September 2014, when it was raised to Rs 15,000.
Government’s own contribution to rise
The proposed change is likely to increase the government’s spending. Employers currently contribute 8.33 percent of basic pay and the government contributes 1.16 percent of basic pay toward the pension fund. If the EPF wage ceiling is increased, it will bring more employees under the EPS which will increase the number of workers for whom the government must contribute. In this case, the government’s total pension contribution will rise even though its contribution rate of 1.16 percent remains unchanged.
The change will also increase costs for employers as they will have to contribute to the provident fund and pension contributions for more employees.
